Scottish Life is backing calls for pension schemes to take more responsibility for defined-contribution investment strategy in a bid to meet the needs of scheme members.
The Pension Institute published a report in April which found that 69 per cent of pension professionals thought that typical investment arrangements in UK DC pension schemes fall short of most members’ needs.
Scottish Life says a properly governed default fund with appropriate investment choice and clear communication for members is often missing in private sector pension schemes.
The National Association of Pension Funds’ annual survey 2006 shows that typically over 90 per cent of scheme members opt for the default fund.
Scottish Life head of communications Alasdair Buchanan says: “The report suggests that many traditional funds fail to match members’ needs adequately.
“It also indicated that the Pensions Regulator is alert to some of these issues for both contract and trust-based DC arrangements. Given the number of people invested in default funds, perhaps the biggest surprise is that it is only now receiving this degree of scrutiny.”
Richard Jacobs Pension and Trustee Services director Richard Jacobs says: “Everyone takes the default option because people have not got a clue so they just tick the box. But default funds offer the lowest risk and the lowest return and they are bad funds.
“The best option would be for the employer to pay for workplace individual advice but this is unlikely to happen as it is expensive for employers. The second-best option would be to put people into a lifestyle fund that automatically shifts investors’ exposure to asset classes to suit the stage they are at in their life.”